This blog connects to the AXEC Project which applies a superior method of economic analysis. The following comments have been posted on selected blogs as catalysts for the ongoing paradigm shift. The comments are brought together here for information. The full debates are directly accessible via the Blog-References. Scrap the lot and start again - that is what a paradigm shift is all about. Time to make economics a science.

February 5, 2017

New Economic Thinking, or, let’s put lipstick on the dead pig

Comment on Eric Beinhocker on ‘It’s Time for New Economic Thinking Based on the Best Science Available, Not Ideology’

For non-economists, the most important thing to know about economics is that there is NO economic science. Yes, there is a prize with the title: “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” but NOTHING REAL corresponds to the word Sciences.

For non-economists, the most important thing is to keep political and theoretical economics apart. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.

The goal of theoretical economics is the TRUE theory: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

For non-economists, the most important thing is to realize is that theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years. Economics is a failed science.

So, yes indeed, new economic thinking is urgently needed. This new thinking has to advance from political agenda pushing to science. This, though, is not what Eric Beinhocker understands under new economic thinking. For him, new economic thinking means to replace the old political agenda by a new political agenda.

The political economist introduces himself as the emphatic person who fights for the good cause. He listens to the downtrodden people and takes them seriously: “But they [the populist movements] also contain many normal people who are fed up with a system that doesn’t work for them. People who have seen their living standards stagnate or decline, who live precarious lives one paycheque at a time, who think their children will do worse than they have. And their issues aren’t just economic, they are also social and psychological. They have lost dignity and respect, and crave a sense of identity and belonging.”

After this depressing reality check, everybody understands that the old agenda has failed and that a new one is urgently needed: “After we listen we then have to give new answers. New narratives and policies about how people’s lives can be made better and more secure, how they can fairly share in their nation’s prosperity, how they can have more control over their lives, how they can live with dignity and respect, how everyone will play by the same rules and the social contract will be restored, how openness and international cooperation benefits them not just an elite, and how governments, corporations and banks will serve their interests, and not the other way around.”

Conclusion: “This is why we need new economic thinking.”

This new thinking does NOT consist in replacing the existing false theories by the true theory but in replacing the old narrative by a new narrative: “... communications is critical ... stories, narratives, visuals, and memes are needed to shift the media and public thinking.”

And exactly at this point ‘new economic thinking’ turns into sheer political blathering: “So what might such a new narrative look like? ... I believe it will contain four stories: A new story of growth; A new story of inclusion; A new social contract; A new idealism.”

There is no better example for soap box economics and how science is hijacked by politics. False economic theory is not replaced by the true theory but the age-old storytelling continues with a made-over narrative. Evolutionary economists have listened to the good people and learned that the old rational models and all this mathiness stuff pisses them off.

The fact of the matter is, though, that “stories, narratives, visuals, and memes” are simply euphemisms for scientific crap. The average person dislikes an objective explanation (e.g. the thunderbolt is an electromagnetic phenomenon subject to physical laws) and likes a subjective explanation (e.g. Zeus threw the thunderbolt because he was angry). The scientific explanation takes the form of a theory, the non-scientific explanation takes the form of an emotionally reinforced narrative. Ninety-nine percent of all societal communication consists of storytelling/blather/wish-wash/truisms/propaganda/gossip, only one percent has scientific content.

The very problem of economics is that it has ZERO scientific content. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and ALL got profit wrong.#1 This includes evolutionary economics.

Economics claims to be a science, yet has never risen above the level of storytelling. Within the tiny box of folk psychology, folk sociology, folk history, and folk politics economic storytelling has taken place since Adam Smith: “Smith ... disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.” (Schumpeter)

The sole purpose of Eric Beinhocker’s new economic narrative is to make the dull folks feel comfortable again. The claim that his polit-kitsch is based on the best science available is a bad joke at the expense of the downtrodden masses.#2

The hybrid science

As a first approximation, one can agree on the general characteristic that the economy is a complex system.

However, with the term system one usually associates a structure with components that are non-human. In order to stress the obvious fact that humans are an essential component of the economic system the market economy should be characterized more precisely as a complex hybrid human/system entity or sys-hum.

The scientific method is straightforwardly applicable to the sys-component but not to the hum-component. While it is clear that the economy always has to be treated as an indivisible whole, for good methodological reasons the analysis has to start with the objective system-component.

In gestalt-psychological terms the economic system is the foreground, individual behavior the background. Common sense wrongly insists that the hum-component must always be in the foreground. This fallacy compares to Geo-centrism. The economic system has its own logic which is different from the behavioral logic of humans. The systemic logic is what Adam Smith called the Invisible Hand.

There are systemic laws but no behavioral laws. Systemic laws have the same methodological status as physical laws.

Neither Orthodoxy nor Heterodoxy can tell what the systemic laws of the actual monetary economy are.

Whether the outcome of the human/system-interaction is good or bad is a politcal question that lies outside of theoretical economics. Theoretical economics explains how the actual economy works - no less, no more.

First Economic Law ®

Narrative vs.Theory

Psychological, sociological or behavioral assumptionism cannot yield anything other than a gossip model of the world. Second-guessing the agents is not economic analysis.

Storytelling is the original mode of communication in the social realm — except science.

Political economics is storytelling and, by default, the natural habitat of confused confusers. Walrasianism, Keynesianism, Marxianism, Austrianism are social narratives and not scientifically valid representations of reality.

"The truth is, most persons, not excepting professional economists, are satisfied with very hazy notions." (Fisher)

In marked contrast, theoretical economics lives up to the standards of material and formal consistency. A scientific theory is the best representation of reality that is humanly possible.

Paradigm shift

"The problem is not just to say that something might be wrong, but to replace it by something — and that is not so easy." (Feynman)

"As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction." (Nell)

"The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory." (Blaug)

"The task of producing knowledge against the grain requires imagination." (Mirowski)

"A new idea is extremely difficult to think of. It takes a fantastic imagination." (Feynman)

"The scientific imagination dreams of explanations and laws." (Peirce)

"It is brilliance of imagination which makes the glory of science." (Evans)

"... we know little more now about ‘how the economy works,’ ... than we knew in 1790, after Adam Smith completed the last revision of The Wealth of Nations." (Clower)

The Starting Problem or What are your axioms?

"What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy."

To be replaced (1)

The core premises of Orthodoxy are uncertain and false and this fully explains the failure of the research program.

“As with any Lakatosian research program, the neo-Walrasian program is characterized by its hard core, heuristics, and protective belts. Without asserting that the following characterization is definitive, I have argued that the program is organized around the following propositions: HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)

This elementary syllogism is demonstrably false. The demonstration consists in the proof that Keynes could not solve the Profit Puzzle. Neither did Post-Neo-New-Keynesians.

In the most general terms, the economics paradigm shift consists in switching from the behavior-centric bottom-up approach to the structure-centric top-down approach. This is comparable to the Copernican turn from Geo-centrism to Helio-centrism.

Paradigm shift

Walrasianism, Keynesianism, Marxianism, Austrianism is provable false and this requires the shift to an entirely new paradigm

AXEC-Meme

If it isn’t macro-axiomatized, it isn’t economics.

Consensus

Economics is a science without scientists. Because they are ignorant of the elementary difference between profit and income, the present generation of economists has not made and cannot make a significant contribution to the discussion about how the actual economy works.

Every orthodox or heterodox economist can convince himself/herself that their profit theory is defective.

Because the profit theory is false the whole of conventional economic theory has to be rejected.

"What is now taught as standard economic theory will eventually disappear, no trace of it will remain in the universities or boardrooms because it simply doesn’t work: were it engineering, the bridge would collapse." (McCauley)

No scientist will ever accept Walrasianism, Keynesianism, Marxianism, or Austrianism. These approaches are logically and/or empirically refuted. This is the actual methodological state-of-the-art. Walrasians, Keynesians, Marxians, or Austrians are still at the proto-scientific stage. These approaches cannot be improved, only abandoned.

Economists are a public nuisance because they have an opinion on everything but knowledge of nothing.

Nopopop

This blog does not add to any popular/un- popular opinion.

This blog does not hand out advice about how to avoid taxes, to get rich on the stock market, to be successful in business, to increase the wealth of nations, to run an economy, to maximize welfare, to prevent national/global bankruptcy, to improve the institutional setup of society, to get out of national/global depression, nor about how to save humankind or any subgroup thereof.

This blog is about the true theory of the actual monetary economy.

"In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion." (Stigum)

Redefining economics

Old definition, subjective-behavioral:

Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.

New definition, objective-systemic:

Economics is the science which studies how the monetary economy works.

From proto-science to science

Political economics is scientifically worthless since more than 200 years

Focus

Science is of primary interest and importance. Scientists are of secondary interest. The general public finds it remarkable that one of Einstein’s peculiar habits was to never wear socks. In marked contrast, physicists find alone his field equations remarkable.

With regard to science most people lose focus easily because of a natural preference for anecdotes over facts or subjectivity over objectivity.

Hence, Schumpeter once considered it necessary to remind his habitually disoriented fellow economists: “Remember: occasionally, it may be an interesting question to ask why a man says what he says; but whatever the answer, it does not tell us anything about whether what he says is true or false.”

Disclaimer

Missing Blog-Reference links: AXEC does not guarantee that their comments can at any time be recovered from where they have been posted intitially because the availability depends on the publication policy of the blog owner which is implicitly accepted on entering a debate. See also: 'Economists: Incompetent? Stupid? Corrupt?'

Texts: Parts of arbitrary length of any of the author's texts is and will be used again by the author in papers, books, websites, blogs, and other media without explicit reference. The right to make corrections or minor textual improvements on reutilization is reserved.

Caution: Do not expect a corroboration of your political view. Neither a refutation. Political economics has been scientifically worthless since Adam Smith. Politics has to be separated from economics because it is categorically different from science.The best science can do and has always done is to prove beyond reasonable doubt that you have been objectively wrong or ignorant until now. Science goes beyond the naive common sense of today and becomes the sophisticated common sense of tomorrow.

Motto

The Scrap-the-lot citation in the intro is from Joan Robinson.

Outlook

To recall, while political economics is storytelling, theoretical economics adheres to scientific standards.

The first task of theoretical economics is to get the axiomatic foundations right. This is what J. S. Mill called the opus magnum. Neither Orthodoxy nor Heterodoxy came up with a reasonable solution until this day. This explains the secular stagnation of economics.

There is no serious alternative to structural axiomatic economics. This is not a matter of opinion but of proof. The sole criteria are material and formal consistency.

All truths are easy to understand once they are discovered; the point is to discover them.

Galileo Galilei

The Profit Law ®

The Law of Supply and Demand ®

Law of Value ®

Employment equation ®

Time evolution of the economic system ®

The Economics God Equation embodies the open simulation of the elementary consumption economy from t=0 to infinity

Major economic policy implication

The price mechanism does not work as standard economics hypothesizes. The axiom-based employment equation states that overall employment increases if the average wage rate increases relative to average price and productivity. This gives one the lever to improve the employment situation all over the world and to fend off deflationwithout rising debt and without artificial capacity growth. To increase the average price relative to the average wage rate and productivity increases unemployment. This is what happens at the moment with the Fed's inflation goal.

Right policy depends on true theory.

“In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

Lacking the true theory, economists promote since more than 200 years opinion instead of knowledge.

From microfoundations to macrofoundations

Copyright and Trademark reserved see Legal at www.AXEC.org. Simple theme. Powered by Blogger.